Full steam ahead for the leading international funds domicile
Despite an unprecedented number of new regulations being introduced into the Cayman Islands over the past 18 months, the jurisdiction has shown itself to be remarkably resilient, with the Islands’ funds industry in particular rising to the challenge and demonstrating its adaptability and flexibility.
In this article, leading offshore legal services firm Appleby, discusses some of the key regulatory changes in Cayman and explains how it has pivoted its own service offerings to respond to these challenges and to ensure the firm continues to meet client demands.
In 2020 the Cayman Islands introduced several regulatory developments, including the Private Funds Act, changes to the Mutual Funds Act, anti-money laundering enhancements and economic substance regime updates. Sailaja Alla, a partner within the funds team at Appleby comments: “What our clients needed most was help navigating the new requirements imposed by these various regimes. As the jurisdictional needs of our clients have increased, we have leveraged our existing relationships and formed new ones to ensure that we continue to put the best solutions forward for clients.”
Christian Victory, also a partner in Appleby’s funds team, notes, “Given the depth and breadth of legislation brought in over the last 12 to 18 months, I think the coming year will be about adjusting to the new normal. Many of the new requirements, however, codified what was already happening in practice across the majority of our fund clients. Notwithstanding the challenges faced – and overcome, the overall outcome has been overwhelmingly positive for Cayman. If anything, it has fostered a better relationship with the EU and reputation for Cayman internationally. Hopefully, we can continue to maintain that success, even though there will always be the possibility of headwinds and challenges on the horizon.”
“We continue to see investment funds consistently outperforming other alternative investment products. Further, we’ve seen no slowdown in terms of fund activity, formations, restructuring and so on, which is all very encouraging. We have also set up specialty practices which would not have traditionally been part of the funds team. Our objectives have been adapted to better respond to market opportunities, to provide broader and deeper expertise and to ensure a solutions-orientated approach for our clients. Appleby’s funds and regulatory teams have also expanded.”
Jennifer Parsons, who heads Appleby’s regulatory practice, notes, “Cayman regulators met the challenges of the past year head on, extending filing deadlines and introducing more flexible documentation arrangements, where possible. Appleby’s regulatory team also sought to keep clients well informed through our Offshore Business Update, our quarterly regulatory newsletter and topical e-Alerts.”
Another regulatory development during 2020 was the introduction of the Virtual Asset Service Providers (VASP) Act, which creates a framework for entities carrying out virtual asset services in or from the Cayman Islands. The first phase of this new law came into effect in October 2020.
Peter Colegate, who co-heads Appleby’s Global Technology and Innovation Group, notes that “recent years have seen the Cayman Islands take a number of legal and regulatory steps to make the Islands a jurisdiction that will allow innovation to thrive. That flexibility means that Cayman is well placed to take advantage of the current shift towards securitising common assets and decentralised finance (De-Fi) products.”
Cayman’s ambition to become a global technology hub is also supported by a Special Economic Zone within the Islands which allows technology companies particular advantages, including fast-tracked work permit applications for relocating employees to Cayman. To respond to the offshore requirements of the big tech firms and the growing number of tech entrepreneurs, Appleby was the first offshore firm to establish a dedicated technology practice.
”Increasingly, tech clients want lawyers who can speak their language. That’s become a key competitive advantage for the firm in the last two to three years,” adds Colegate.
The Cayman Islands continues to adhere to the highest international standards of anti-money laundering and counter-terrorist financing set by the Financial Action Task Force (FATF). In 2019 the jurisdiction also introduced its Data Protection Act to ensure that businesses and investors have the confidence that their personal data will be protected while in Cayman.
Looking ahead, the change in administration in the US and its path out of the pandemic are macroeconomic factors that the Cayman Islands’ financial services industry will be keeping a close eye on. Parsons comments: “Given a large number of our clients are US based, we need to consider what will happen with Covid recovery in that jurisdiction and whether the Biden administration will usher in regulatory change.”
Parsons adds, “We certainly do know that further Cayman changes are afoot for 2021, including the second phase of VASP regulation and exempted limited partnerships being brought into scope of the economic substance regime.”
Victory concludes, “Whilst we expect there to be continued focus on the areas of anti-money laundering and data protection, we understand Cayman’s regulators are also considering ways to broaden and update the spectrum of products available in the jurisdiction, to meet market demand. The Cayman Islands will always seek to meet and exceed global standards, so we‘re happy to embrace new requirements; provided those requirements are applied equally and in a fair and transparent manner. We remain positive on the outlook and are very much looking forward to 2021 being another successful year.”
Partner, Funds & Investment Services, Appleby
Christian Victory is a Partner in the Corporate team. He specialises in advising on all matters relating to Cayman Islands alternative investment vehicles, private equity, funds and investment services in addition to regulatory and compliance matters. Christian is ranked as a ‘next generation partner’ in Legal 500 2020 and is the current Secretary of AIMA Cayman 2020-2022.
Partner, Funds & Investment Services, Appleby
Sailaja Alla is a partner within the Corporate Group in Cayman. Sailaja has extensive experience in advising clients on all aspects of the formation, operation, restructuring and termination of all types of Cayman Islands investment funds. She also advises on Cayman regulatory and licensing issues in relation to these funds. Sailaja also has experience in a wide range of general corporate matters.
Jennifer is Counsel within the Corporate Group at Appleby. She specialises in providing regulatory advice to clients within the banking, investment fund and fund administration, insurance and securities sectors. Jennifer also has extensive experience advising hedge funds, hybrid funds and private equity funds, top tier investment managers, administrators and other fund service providers on all aspects of fund formation, ongoing regulation and compliance, restructuring and termination.
Peter Colegate is Counsel in the Corporate Group and co-head of Appleby’s Global Technology and Innovation Group. His practice is focused on privacy, data protection and strategic corporate-commercial and regulatory work in the technology and innovation sectors. A privacy and data protection specialist, Peter is a member of the International Association of Privacy Professionals and sits on the Cayman Islands Government’s Working Group on Data Protection. He is a member of the Financial Services Legislative Committee Fintech Sub-Committee, the Cayman Finance Fintech Innovation Lab, the Cayman Islands Blockchain Association and the Fintech Professionals Association. In 2020, Legal 500 ranked Peter as a ‘Rising Star’ noting him as a “subject matter expert, responsive and detail-oriented” for Regulatory and Compliance.